Question

Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 233 units of output. At 233 units, ATC is $12, and AVC is $9. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ for this firm.

Answer 1

Continue operating; $699

Step-by-step explanation:

The equilibrium price is $10.

MR = MC at 233 units of output.

At this output level, ATC is $12, and AVC is $9.

The AFC or average fixed cost

= ATC - AVC

= $12 - $9

= $3

The total fixed cost

=
`AFC\ * Q`

=
`\$ 3\ *\ 233`

= $699

The equilibrium price is able to cover the average variable cost so the firm should continue production in the short run.